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JST

Link Between Asset Prices & Monetary Policy

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Obviously this is old news, but I've never seen this on HPC before so thought it was worth posting. I came across this speech of Stephen Nickell (our favourite MPC member) on the b of e's website.

http://www.bankofengland.co.uk/publication...5/speech255.pdf

In it Nickell considers what role the boe should have in controlling asset bubble's. He conclude's that it's impossible to say whether housing is in a bubble or not and in any event to have prevented it the boe would have had to have raised interest rates considerably, which would have substantially reduced GDP.

It seems to be an interesting rationalisation of the boe's policy for the last few years and perhaps a tacit admission that the housing boom and high debt levels are a problem - suggesting that raising interest rates may not necessarily have reduced 'the size of the subsequent crash'

His conclusions:

Concerning the role of asset prices in monetary policy, here we have analysed the
implications of the 2002-4 UK housing boom. The overall conclusions are first, it is
impossible to tell whether or not there has been a house price bubble in the light of the
fall in UK long-term real interest rates from around 4% in the mid 1990s to around
2% by 2000. Second, to have any significant impact on the housing boom, the MPC
would have had to raise interest rates by around 300 basis points for three years from
late 2002. This would have cut GDP growth by a little over 1/2% in 2003. Third,
it is
impossible to say, at the moment, whether or not such a policy would have been
worth doing in order to reduce the size of the subsequent housing market crash.
Since
no crash has yet been observed, currently it seems unlikely that the “bubble pricking”
policy would have been sensible, ex post. And, who knows, if the MPC had raised
interest rates by 300 basis points in 2002, sterling might truly have risen to
unsustainable levels!

Apologies if this has been posted before. However, it seems interesting considering that Nickell is considered to be the most Dovish - rate cutting MPC member.

Edited by JST

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At least he f*ckwit dove has finally flown the BoE nest - good riddance to bad rubbish

Wouldnt be suprised to see him coo-ing as some advisor to Brown

Hes probably in line for a knighthood - services to the miracle economy

Edited by jp1

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Thank you for this

This Stephen Nickell is a total imbusile and even worse a jobsworth.

There could be dire consequences but its not my concern type attitude (where have I heard this before)

These twits are in positions that effect our lives!

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In his defence it is my uncerdstanding having just analysed real average house price changes, real average wage changes and changes in the base rate over 10 years that...

there is 30% correlation between rises in wages and prices (just about significant)

there is no correlation between IRs and house prices.

I know this is VERY counter-intuitive but my lecturer was unsurprised by my results and said that it is very hard to find a correlation.

Can anyone prove a correlation.... statistics over 10 or 20 years stuck in excel and with a correlation shown?

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Thank you for this

This Stephen Nickell is a total imbusile and even worse a jobsworth.

There could be dire consequences but its not my concern type attitude (where have I heard this before)

These twits are in positions that effect our lives!

Yes, probably. But I bet he at least knows how to spell the word imbecile.

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there is no correlation between IRs and house prices.

I know this is VERY counter-intuitive but my lecturer was unsurprised by my results and said that it is very hard to find a correlation.

This doesn't surprise me.

There have been cases where rates have shot up, yet housing continues to boom, and cases where dropping rates hasn't stopped the housing market crashing.

At the moment it looks great to suggest that current house prices are justified by low rates, but this is nonsense, in the same way that buying a car on HP makes it "cheap".

It's the stupid man's way of feeling rich.

Sadly it looks like people will just have to learn the hard way (again)

Edited by BandWagon

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This doesn't surprise me.

There have been cases where rates have shot up, yet housing continues to boom, and cases where dropping rates hasn't stopped the housing market crashing.

Remember that lax lending isn't just about low rates, lending criteria and regulations are also lowered, and banks and the wider credit derivatives market provide liquidity to sub-prime lending because they are simply in search of yield, leading to a total mismatch between appropriate risk/reward. Pension funds are then forced to buy these "safe" bonds by the regulators.

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It is not unreasonable to suggest that government should try to prevent bubbles. The monetary policy shouild get on with controlling inflation (and house prices may be a factor).

It doesn't seem to me unreasonable that they should increase regulation, buut equally, as someone with common sense, economics degree etc i beliieve that if I find a bank stupid enough to lend me vast sums then they should be able to. Maybe unfair in some people's eyes, but I'd restrict borrowing to traditional multiples, BTL 30% deposit and 130% interest coverage - enshrined in law and quite strict. Then allow more flexible lending, but only available to people who qualify. Anyone with an economics degree for example. Maybe also introduce a "personal finance, business and economics" GCSE and make getting an A or B a criteria for future flexible lending?

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  • 339 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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